Home prices make smallest gains in nearly 4 years, but rents are hot

Real Estate

The slowdown in home sales and home price gains in most major U.S. markets is causing the opposite effect in the rental market, especially for single-family rental homes.

Home prices logged a 5.1 percent annual gain in November, the smallest gain since August 2015.

If fewer people are buying homes, especially first-time buyers, then they remain renters, which is boosting the market.

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Rent prices for single-family homes increased 2.9 percent annually in November 2018, according to CoreLogic. That is up from 2.8 percent annual growth in November 2017.

Demand for rental homes is now so strong, and supply so low, that rents have nowhere to go but up. The gains are especially high for lower-end rental homes, up 3.8 percent annually in November. High-end rents, however are still gaining, up 2.6 percent annually compared with 2.3 percent gains in November 2017.

Of course all real estate is local, and hot markets like Las Vegas, Phoenix and Orlando are seeing the highest rent gains for single-family homes.

These markets were hardest hit during the housing crash more than ten years ago, as thousands of homes purchased by flippers using subprime mortgages defaulted on their loans. These cities had the highest foreclosure rates in the nation, and many of those foreclosures were purchased by large institutional investors and turned into rental properties.

Both Orlando and Phoenix are seeing strong employment gains at nearly five times the national rate. Consequently, demand for rentals is heating up.

Despite the gains, however, rents have still not seen the heat that the for-sale housing market has in the past few years.

“Long-term rent increases have been lower than long-term home price increases,” said Molly Boesel, principal economist at CoreLogic. “For example, rent prices increased 17 percent over the past five years, compared with a 32 percent increase in home prices over the same period. Additionally, lower-priced rentals and homes increase 1 ½ to 2 times faster than higher-priced rentals and homes.”

Vacancies for single-family rentals are very low and declined in November to 4.6 percent from 4.7 percent in October, according to Morningstar Credit Ratings. While part of that is seasonal, close to 79 percent of renters are renewing their leases, which is historically high.

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